What is the best way to deliver in-car telematics?

Would you rather be Starbucks or a company that makes coffee cup holders?

That, according to Joe Berry, head of JBJ Advisors, is what automakers need to figure out when it comes to providing in-car telematics services.

Berry compares branded, embedded, carefully curated in-car services (like GM’s OnStar or Mercedes-Benz’s mbrace) and systems that use smartphones as the conduit for services (like Ford’s SYNC) to having coffee in your car.

OnStar and mbrace brew the espresso and deliver it to the car’s customized cup, which sits in the car’s cup-holder.

SYNC simply provides the cup-holder.

Which model is better positioned to profit from the always-on auto?

To date, the Starbucks model has the edge.

Follow the profits

Carmakers can collect an extra $198 a year or more for their services packages, year after year, on top of the hardware sale.

While car manufacturers would love the recurring, incremental revenue that comes from data subscriptions, handling the service comes with incremental expenses, not the least of which is providing support for third-party software and services.

Their partners can profit, too. But this approach limits the number of applications and service providers that can get inside the car.

Manufacturers using the cup-holder model provide an application programming interface (API) that lets developers hook their software into the car’s.

The OEM also creates the display and a user interface that translates the data coming from the phone in ways that make sense when driving.

For example, the auto’s system may block texting when the car is in motion, while providing enhanced graphics for mapping services.

“This model allows smart car-makers to stick to their knitting and let people have access to content, data and cloud series,” says Doug Van Dagens, director of Ford Connected Services. “And we don’t have to replicate that and embed it in the vehicle.”

The appeal of apps

Application and content developers don’t need to reinvent the wheel by porting or rewriting their applications for proprietary in-auto systems.

Moreover, smaller app companies can compete for consumers’ attention on the somewhat more level playing field of the carriers’ app stores, instead of having to negotiate individual deals with each automaker.

The cup-holder approach expands the range of partners that can make money but, to some extent at least, reduces the total revenue for the OEM.

Ford hopes to get payback from selling more cars, although it may ask for a slice of revenue from paid applications delivered to the car in return for acting as a distribution channel.

Reduced expenses for billing and customer service may offset the loss of a paid subscription for the in-car service system.

“Cellular companies are investing millions in building the infrastructure,” says Berry, a former Ford exec who helped develop SYNC. “Just take advantage of it. Let people bring their own phone, and if it breaks, they’ll go back to the carrier and get a new one. If they don’t like the application, it’s not your problem.”

Continental’s AutoLinQ

Continental’s work-in-progress—AutoLinQ Connected Services Platform, which auto-makers can configure and rebrand to create their own differentiated suite of apps and services—takes a hybrid approach.

Continental will provide the cup-holder and the cup, letting carmakers decide where to get the coffee.

The plan is to leverage the work of the Android developer community, with AutoLinQ acting as the broker for applications, connectivity, billing and other back-end functions.

But consumers won’t be able to browse and download at will to their cars.

“We believe the automakers will want some degree of control and link to their consumers in their cars for their own branding,” says Brian Droessler, vice president of strategy and portfolio for Continental’s Infotainment & Connectivity Business Unit. “We will work with OEMs to host and certify those apps that the OEM will offer to consumers.”

(To read TU’s Executive Viewpoint interview with Droessler, click here.) In this scenario, multiple entities may be splitting up the revenue pie, including server farms, telcos, and billing services.

Consumers decide

“One business model proposal is to follow the telecom market for applications, where about 70 percent of revenue goes to the developer and the remaining 30 percent goes to the rest of the value chain, including the OEM,” Droessler says.

Which model wins may be—should be, according to some experts—determined by consumer habits.

Most of us love our cell phones way more than we love our cars’ telematics.

“With the ubiquity of mobile devices and the incredible tools they offer, consumers now have a presumption that they’ll be given these opportunities to connect and interact in any environment,” says Brent Marcus, senior digital strategist at IPG Emerging Media Lab, part of the Interpublic group of advertising agencies.

Marcus is in the cup-holder camp.

“Car manufacturers need to take what they’re best at and try to marry that with what’s going on in the information world,” he says. “If they can crack those input and output questions, how to make the experience in the vehicle better, they’ll be far ahead.”

And once those questions are resolved, everyone can just lean back and enjoy their coffee.

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